Combating Fraud and Maintaining Excellent Member Experience

hands reaching for the word fake on a hook
By Nicole Reyes

3 minutes

Two key recommendations: Don’t take a one-size-fits-all approach and think of security as service

Sponsored by Co-op Solutions

As fraudsters continue to evolve and adapt to changing consumer behavior, having a multi-layered strategy is more important than ever. It’s not just about reducing the number of incidents, because fraud prevention has also become a vital component of the member relationship. It reaffirms to your members that you are keeping them and their money safe at all times. 

For the past few years, we’ve seen digital payments skyrocket as a result of COVID-19. With that has come a surge in card-not-present fraud across digital and ecommerce transactions. Looking at our own card portfolio, CNP fraud accounted for almost 82% of fraud losses in 2021. Internationally, that number is even higher, reaching 95%.

For most financial institutions, the knee-jerk reaction to this trend might be to ramp up fraud prevention methodology, enforcing stricter rules on flagging potentially suspicious transactions; but doing so can quickly increase your false-positive rate. Members may quickly become frustrated if they have a transaction declined at the point-of-sale because their credit union is being extra cautious. 

How do credit unions effectively battle this new wave of CNP fraud without negatively impacting the member experience? Here are two key recommendations.

Don’t Take a ‘One-Size-Fits-All’ Approach to Fraud

It’s easy to see increases or decreases in fraud across your portfolio as a sign you should tighten up or relax transaction acceptance rules. In reality, fraud can vary significantly depending on several factors, such as: 

Merchant & Geography. Fraud trends begin to look very different when you break them down by merchant codes and geography. For instance, the biggest fraud merchant types for CNP in the second half of 2021 were “digital goods” and “gaming.” It follows, then, that the states that make up the overwhelming majority of fraud losses are California and Washington, where companies like Apple (California), Amazon (Washington) and Google (California) are based.

CNP Method. It wasn’t just ecommerce that caused the spike in CNP fraud. As consumers began testing out payment methods like digital/touchless or buy online/pick up in-store, fraudsters were quick to pick up on the trend. 

Transaction Size. As overall fraud rose, the average transaction dollar amount also rose slightly in 2021, reaching an average of $160 per transaction. Despite the increase, it still supports the “small, long game” we’ve been seeing for quite a while: the emergence of a new breed of less sophisticated, younger criminals who are seemingly content with taking less profit per transaction in favor of playing the volume game. For credit unions, the lower average ticket amount makes it more difficult to track patterns or catch large-scale scams. 

Taking a more nuanced approach to fraud prevention that considers the above factors will help prevent fraud and help lower the risk of false positives. 

Think of Security as a Service Offering 

Delivering enhanced security isn’t just a member expectation; it can be a defining part of a relationship with your credit union. 

Like any service channel, enhanced security is a two-way conversation. Members need to be able to report security issues and to do so conveniently. At the same time, they expect their credit union to cover their blind spots, protecting them against suspicious activity based on their historical spending behavior and alerting them at once. 

The more that credit unions start to think about security as a service to offer, the more effective fraud response will become. 

Above all else, it is critical to have a pulse on the ever-evolving world of fraud. From account takeover schemes to bank identification number attacks, fraud is becoming more complex by the day. It has never been more important for credit unions to know the biggest vulnerabilities. 

Nicole Reyes is director, fraud prevention at CUES Supplier member Co-op Solutions.

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